HSBC and Standard Chartered are gearing up to expand their operations in Vietnam after securing approval to be the first overseas banks to incorporate their local operations in the fast-growing economy.

The State Bank of Vietnam on Tuesday awarded each bank a licence to apply to open wholly-owned units in the country, honouring a pledge made to open the sector when it joined the World Trade Organisation last year.

Some 40 foreign banks account for less than 15 per cent of total lending in Vietnam and local incorporation will give HSBC and Standard Chartered a head start on foreign rivals to expand their branch networks and product offerings.

The liberalisation of the banking sector comes amid a worsening economic backdrop in Vietnam, with annual growth revised down to 7 per cent and credit growth restricted to control double-digit inflation.

Nevertheless, Vietnam remains attractive for overseas banks because it is one of the least penetrated markets in Asia, with just one in 10 of its 87m population holding a bank account.

Both UK-listed banks boast long histories in the Communist-ruled country. HSBC opened its first branch in Vietnam in 1870, while Standard Chartered followed in 1904. Each bank has the maximum two branches in the country, focused on serving wholesale banking requirements of Asia-based companies opening factories in the country.

HSBC aims to open at least 10 more branches in the next two years, while Standard Chartered has signalled plans to open up to 30 branches over the next four years.

Tom Tobin, chief executive of HSBC in Vietnam, said: “Local incorporation will allow us to have a broader distribution network. We see the consumer retail market as a big opportunity over the medium term.”

Ashok Sud, chief executive of Standard Chartered in Vietnam, said that local incorporation would enable it to be better positioned to assist Vietnamese companies to raise finance on international markets.

HSBC and Standard Chartered also own stakes in local banks, bringing western risk management and product knowledge in to the financial sector.